Overcoming obstacles to engagement letter use

Written by promotiondept

November 12, 2018

Overcoming obstacles to engagement letter use Why should CPAs use engagement letters? The reasons are many and varied. Professional standards require an engagement letter for attest services. Standards for other services require the CPA to establish an understanding with the client of the services to be performed. In addition, the use of an engagement letter […]

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Overcoming obstcles to engget letter use

Why should CPs use engget letters? The resons re mny nd vried. Professionl stndrds require n engget letter for ttest services. Stndrds for other services require the CP to estblish n understnding with the client of the services to be performed. In ddition, the use of n engget letter generlly provides for more efficient resolution of client disgreets. Finlly, the ICP Professionl Libility Insurnce Progrm’s experience demonstrtes tht the use of engget letters hs positive impct on reducing clim severity.

Despite ll of the benefits supporting the use of engget letters, mny CPs fil to do so. If you re one of the CPs who does not use n engget letter, perhps one (or more) of these is the reson you’ve been using.

In short, yes, engget letters work. While they re not “get out of jil free” crd if clim occurs, engget letters support defense if clim rises. Consider this story where solid engget letter my help to void future clim:

CP firm’s corporte tx client becomes subject to sles tx collection nd remittnce obligtions in vrious sttes following the Supreme Court’s decision in South Dkot v. Wyfir, , No. 17494 (U.S. 6/21/18). The client sold goods over the internet nd did not collect sles tx in South Dkot nd other sttes tht impose sles tx collection obligtions on outofstte retilers tht meet certin “economic nexus” stndrds. Disstisfied with the new tx obligtions, the client blmed the CP firm for filing to dvise it to review its sles tx filing obligtions in other sttes. The CP firm responds by referring to its trusty engget letter, which contins two importnt, pplicble provisions, nmely:

To further shield the CP firm from the client’s displesure, the firm sent newsletter to ll clients explining the impct of the Wyfir decision nd dvising clients to contct the firm for ssistnce in pplying the decision to their specific fcts nd circumstnces.

Some ttorneys who defend CPs refer to these types of clients s “frenemies.” Perhps you hve known them since grde school. Or mybe you ttended their children’s weddings. You my believe tht they would never sue their good friend nd CP … until something goes wrong. Consider this story of CP being sued by seemingly loyl client:

The CP performed compiltion nd red s for his high school buddy who rn scrp metl business. The two hd known ech other more thn 30 yers nd worked together t lest 20 yers, nd everything ws running smoothly, or so the CP thought. trusted employee of the client embezzled over $1 million of inventory over five yers. When the scheme ws reveled, the high school buddy sued the CP for filing to discover the theft or informing him of weknesses in internl controls.

Other times it my not be longtime client who sues the CP, but minority owner in the business or beneficiry of trust creted by the longtime client. Consider this scenrio:

The CP performed bookkeeping services nd red prtnership for business tht ws 97% owned by longtime client nd 3% owned by his three dult children. Following the fther’s , the children brought clim ginst the CP, sserting tht the CP ided nd betted the fther in misppropriting business ssets by pying for personl s such s overses trips, club dues, nd vehicles for his wife, the children’s stepmother.

Mke no mistke, impleting engget letters tkes dministrtive time. However, there re severl strtegies ny CP firm cn employ to reduce the time spent mnng the engget letter process, including:

Hving clients sk for dvice on regulr bsis is often relished by CP, but doing so without estblishing scope of service gretly increses the risk of client dispute. Indeed, in 45% of consulting clims sserted to CN in 2017, n engget letter ws not used. When n engget letter is not used, it is the client’s word ginst the CP’s.

Consider using forml engget letter for the primry service or services provided. When the client expnds the scope of services by sking question or requesting dvice, send n emil or other written correspondence confirming the scope of services nd the estimted fees, nd indicting tht the terms nd conditions of the originl engget letter pply. While not s effective s forml, signed engget letter, this protocol, t minimum, docuts the scope of services in the event of dispute. CP firms should consult with their professionl libility insurers nd/or ttorneys before impleting this protocol.

Smple engget letters re intended to comply with professionl stndrds, s pplicble; to memorilize services to be performed for the client; nd to help llocte risk between the client nd the CP firm. CPs should customize engget letters for their client bse, s well s for individul enggets. In n ttempt to shorten engget letters, CP firms my delete provisions tht pper to be “leglese.” However, the risks those provisions re intended to ddress my not be obvious. So, before eliminting provisions tht re not y understood, consider contcting the firm’s professionl libility insurer, ttorney, the ICP, or other prctitioners to get better understnding of the reson for the provision.

First, strt erly. Impleting the use of engget letters will require lerning curve on the firm’s prt, nd clients should be educted in this re or my hve questions s well.

Creting engget letter templtes for your firm is good strt. Customizing the templte for individul enggets will complete the process.

Tke riskbsed pproch. Tckle highrisk clients nd enggets first. lso, going forwrd, consider impleting engget letters for ny new clients to get them strted on the right trck.

If your prctice includes lrge percentge of simple individul s, consider using unilterl engget letters. Ech yer, increse your engget letter use. Next thing you know, you’ll hve engget letters for ll clients nd will be n engget letter llstr!

Deborh K. Rood, CP, is risk control consulting director t CN. For more informtion bout this rticle, contct specialtyriskcontrol@cna.com.

Continentl Csulty Compny, one of the CN insurnce compnies, is the underwriter of the ICP Professionl Libility Insurnce Progrm. on Insurnce Services, the Ntionl Progrm dministrtor for the ICP Professionl Libility Progrm, is vilble t 800-221-3023 or visit cpai.com.

This rticle provides informtion, rther thn dvice or opinion. It is ccurte to the best of the uthor’s knowledge s of the rticle dte. This rticle should not be viewed s substitute for recomdtions of retined professionl. Such consulttion is recomded in pplying this mteril in ny prticulr fctul situtions.

Exmples re for illustrtive purposes only nd not intended to estblish ny stndrds of cre, serve s legl dvice, or cknowledge ny given fctul sitution is covered under ny CN insurnce policy. The relevnt insurnce policy provides ctul terms, coverges, mounts, conditions, nd exclusions for n insured. ll products nd services my not be vilble in ll sttes nd my be subject to chnge without notice.


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Happiness is for those who plan well and pursue. A profound among us have been proven those who have true dream to live for likely REALIZED IT. It is just simply the person working toward the DREAM days and night until accomplishment. There is a phrase of efficiency a head of you. Steps and obstacles at first seem tremendous. However, just with some times those difficult steps and challenges are so easy performance for you. There are also plenty of tools including VISUALIZATIONS and helps are around you.

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